Moderation in gas prices will improve margins for urea players: ICRA

The moderation in the regassified Liquified Natural Gas (r-LNG) price will support profitability for urea manufacturers with lowering of the working capital requirements, according to ratings agency ICRA.

“Natural gas is the key raw material for manufacturing urea and constitutes approximately 70 per cent of the total cost of production of the fertiliser. Fertiliser sector receives natural gas under the pool price mechanism wherein all the players receive gas at same cost which is the weighted average of the cost of gas consumed by the urea manufacturers,” it said.

“Imported R-LNG prices had been on an uptrend driven by strong Chinese demand as the country partly replaced coal with natural gas as a key source of energy to combat pollution. However, as we move forward, r-LNG prices are expected to moderate given the forecast of a warmer winter in the Northern hemisphere, falling crude oil prices and high LNG storage levels in Japan, China and South Korea, the top three LNG consumers of the world,” ICRA said.

Commenting on the impact of lower gas prices, Mr. K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA, said, “Spot LNG prices have already moderated by approximately 13 per cent towards the beginning of December 2018 from the recent peak of $11.5 a million British thermal unit (mBtu) achieved in the beginning of November 2018. The LNG prices are expected to moderate further to around $8.5-9 per mBtu by January 2019 with similar levels expected for entire fourth quarter of financial year 2018-2019.”